Arun Jaitley
Arun Jaitley presenting the budget | Lok Sabha TV
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Scraps grants-in-aid, asks IITs, IIMs NITs to take soft loans and pay 25 per cent principal.

New Delhi: In a major reform move for the higher education sector in India, Union Budget 2018 has announced a new model for funding infrastructure in the centrally funded higher educational institutions, calling on IITs, NITs and IIMs to pitch in with 25% of total funds needed.

The budget 2018 has declared that there will be no further grant-in-aid for new infrastructure across Centrally Funded Technical Institutes including the IITs, NITs and IIMs. It is estimated that Rs 1 lakh crore will be needed across institutes until 2021-22 for creation of new infrastructure. While Rs 25,000 crore is estimated towards old and new IITs, Institutes of Eminence, New and old Central Universities and possibly new institutes will need Rs 10,000 crore each, NITs would require Rs 7,300 crore.

The move is being made to bring in greater accountability and responsibility in government funded educational institutes, to shift funding mechanism to a project based one rather than a dole out mechanism. The government also believes that besides pushing institutes to mobilise their own resources, the move will also allow institutes to seek more funds and money than they currently get allocated, provided their project proposal is credible enough.

Under the new funding regime introduced today, each institute will now have to seek funds on the basis of projects proposals and seek loans from the Higher Education Financing Agency (HEFA) to fund the same. While the government will bear the cost for 75% of the principal amount and the interest incurred, the institute will have to pay 25% of the principal cost through user charges, research and consultancy besides student fee.

In case of Central Universities which have constraints in raising student fee, they will have to only pay 10% of the principal amount.

Stopping short of fully deregulating fee in these institutes, keeping student interest in mind, the Modi government will allow educational institutes considerable freedom to mobilise resources on their own.

ThePrint details the finer points of the new funding mechanism:

Starting 2018-19, all infrastructure development has to be through HEFA loans only and not through the prevalent grants-in-aid mechanism where the Centre just distributes funds to various institutes.

Now, only projects which are appraised through Expenditure Finance Committee will be eligible for funding. Any other infrastructure will have to be done by the institution with its own funds.

All funds taken on loan for the year would be spent fully. In other words, there would be no advance release of funds, and all releases under this project from HEFA would be directly to the vendors/contractors on certification by the CPWD.

For servicing the loan, Govt will fund 75% of the principal payable per year plus all the interest, by releasing grant-in-aid to the institution through the MH-31 (servicing of loans). The Interest rate would be kept constant at 9 per cent.

The institution will have to fund the balance 25 per cent of the principal portion by securing these funds from the student fees, research and consultancy income and other earnings. Funds for maintenance of the assets would need to be generated by the institution themselves through user fee.

The yearly repayment is estimated based on the standard loan amortisation schedule.

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